Bitcoin’s body count is rising

Opinion: Nakamoto is the latest to be bit by bitcoin

SAN FRANCISCO (MarketWatch) — Ah, the growing pains of a virtual cryptocurrency. Happens every time.

Dorian Nakamoto, who may be or probably isn’t the mastermind behind this year’s investment fad, is the latest to get swept up in bitcoin’s unforgiving path of destruction. Nakamoto was “outed” last week in a Newsweek story, which revealed the 64-year-old physicist as the brains behind the currency that was supposed to make us all richer and able to effortlessly buy Sacramento Kings tickets and flat screen TVs direct from Guangdong.

And this is supposed to make the world a better place?

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Bitcoin is falling a little short. Aside from a wildly fluctuating value that made bitcoin owners temporarily rich, bitcoin has been more a bad penny. Let’s take a look at the growing casualty list:

Bitcoin investors. With the exception of early adopters who managed to not have their bitcoin held in one of the industry’s dubious operators, bitcoin investors have, at best, been on a wild ride. It traded at $30 a year ago. Hit $1,200 at the end of last year (that’s when most people got in). Guess what? It’s around $625 now, but really, you should check. Bitcoin is about as stable as Justin Bieber’s trip through puberty.

Newsweek. Unless the experts are wrong, Newsweek got hoodwinked. Now, for a struggling publication that’s been clobbered by electronic media, one could argue it was worth it to get the brand back in the discussion. And Newsweek generated a lot of buzz with the Nakamoto story. It’s editors have been out defending it. In journalism it’s true that there’s no such thing as bad publicity with one exception: if you got it wrong.

As Michael Wolff put it in his scathing critique: “Newsweek is a lot like Bitcoin. Bitcoin pretends to be a currency, but it lacks the most important aspect of a currency: stability. Newsweek, now owned by a dubious outfit called IBT, pretends to be Newsweek, a venerable and stable journalistic brand, once owned by the Washington Post.”

The Winklevoss Twins: Cameron and Tyler Winklevoss are big into bitcoin. Given their luck with Internet ventures, it was a likely red flag that bitcoin was going to get messy.

Regulators: These poor guys don’t know what hit them. Over in Japan, the government started looking for a bitcoin regulator after the collapse of Mt. Gox. Janet Yellen, the chairman of the U.S. Federal Reserve, said Feb. 27 that the Fed couldn’t regulate bitcoin even if it wanted to. U.S. Treasury Secretary Jack Lew said the government is most worried that bitcoin “does not become an avenue to funding illegal activities.” State regulators are all over the map. They’re as confused as the rest of us.

Mt. Gox, Bitinstant. Whatever these bitcoin houses are (exchanges? banks?), they sure are living up to Wall Street standards — but not in a good way. Mt. Gox collapsed at the end of February and “lost” all of its clients’ holdings. BitInstant is accused of money laundering to a black market site, Silk Road. Reports said that Mt. Gox was undone by hackers.

The rest of us. As the buzz around bitcoin swirls, many of us are wrapped up in the story. We ignore more pressing issues: high unemployment, stagnant wages, a worrisome market rally, government deficits, rising health costs and a new insurance system to navigate, housing woes — the list goes on.

Bitcoin should really be a small part of the discussion. Even its most promising benefits of transaction ease and the bypassing of expensive payment systems are negligible in a world where industries and commerce are shifting so rapidly, many of us find ourselves left in the lurch of global economics.

This five-year-old kid currency may grow up into a mature form of legal tender someday, but for now, bitcoin is only worthwhile as a series of side stories: the whodunnits of the founders, the bankers and the illegal activities. Bitcoin makes a nice movie, but not something that belongs front and center on the finance page. That area is supposed to be for money — the kind that’s worth the same today, yesterday and tomorrow.

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